1.12.14: 13 years of Gradually Decelerating SP 500 Revenue Growth

Thanks to Greg Harrison of ThomsonReuters that provided the following data. We requested quarterly revenue growth for the SP 500 from q1, 2000, which you will find in the attached table.

FCSP500revgro(qtrly)

There is a couple of points to note about the data:

1.) You can see how bursts of strong economic activity are accompanied by double-digit SP 500 revenue growth, as in 2000, and the period from early 2003 to early 2007. In q3 ’03, I believe GDP hit 8%, a remarkable print as hiring had not fully recovered from the tech and growth bubble collapse, not to mention 9/11, so productivity soared in late 1003.

2.) You can also see how recent SP 500 revenue growth has been very tepid, as well as SP 500 earnings growth, and yet we just completed a 30% year in terms of the SP 500;

We made some notations in the column and notated some blocks of quarters with comments, but it is clear that SP 500 revenue growth has gradually decelerated in the last 13 years, while we are in a period of what seems to be quiet stability, revenues are still well below trend.

The 56 quarter average is 6.38%, which we would then consider “trend-line” average going forward.

Ironically, we have not seen an “average” quarter of revenue growth since the middle of 2011, when in fact the SP 500 was in the middle of a 21.5% correction from late April, 2011 to early October, 2011.

My own conclusion is that is that high single digit to low-double digit SP 500 revenue growth is better than the current period.

However, the first three quarters of 2013 SP 500 revenue growth “averaged” 1.87% and EPS growth averaged 5% – 6%. Hardly the stuff of a 30% calendar year return on the SP 500.

Perhaps the low-single-digit revenue growth is a function of the very low inflation and disinflation the US economy is still experiencing.

The point of this post is that we expect SP 500 revenue and earnings growth to continue to accelerate, but it doesn’t appear to be a coincident factor with SP 500 returns. The attached data is simply more evidence that the SP 500 is a leading indicator and discounting mechanism.

Long-term revenue and EPS growth for the SP 500 can still be thought to be “below-trend” at 6.38% and 7% respectively, but are returning to normal.

Thanks for reading.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

brianglm@trinityasset.com

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